FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Numbers: 333-32385-05 and 333-32385
HEDSTROM HOLDINGS, INC.
HEDSTROM CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 51-0329830
Delaware 51-0329829
(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) Number)
585 Slawin Court, Mount Prospect, Illinois 60056
(Address of principal executive offices, including zip code)
(847) 803-9200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No ____
At May 14, 1998, there were outstanding: (i) 36,142,883 shares of
the Common Stock, par value $.01 per share, of Hedstrom Holdings,
Inc., (ii) 31,520,000 shares of the Non-Voting Common Stock, par
value $.01 per share, of Hedstrom Holdings, Inc. and (iii) 10 shares
of the Common Stock, par value $.01 per share, of Hedstrom
Corporation.
<PAGE>
HEDSTROM HOLDINGS, INC.
HEDSTROM CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of March 31, 1998 and December 31, 1997
Consolidated Income Statements
Three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997
Consolidated Statement of Stockholders' Equity
As of and for the three months ended March 31, 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signature
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
HEDSTROM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1998 1997
---------- -----------
<S> (unaudited)
ASSETS
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $ 3,748 $ 10,844
Trade accounts receivable, net of
allowance for doubtful accounts 84,464 82,702
Inventories 51,637 47,464
Deferred income taxes 7,128 7,045
Prepaid expenses and other current assets 4,746 4,801
-------- --------
TOTAL CURRENT ASSETS 151,723 152,856
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost,
net of accumulated depreciation 43,913 42,823
-------- --------
OTHER ASSETS:
Deferred charges, net of accumulated amortization 17,876 18,861
Goodwill, net of accumulated amortization 160,958 161,176
Deferred income taxes 9,959 10,057
-------- --------
TOTAL OTHER ASSETS 188,793 190,094
-------- --------
TOTAL ASSETS $384,429 $385,773
======== ========
</TABLE>
<PAGE>
<TABLE>
HEDSTROM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1998 1997
---------- -----------
(unaudited)
<S>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: <C> <C>
Revolving line of credit $ 37,500 $ 35,500
Current portion of long-term debt and capital leases 10,128 9,222
Accounts payable 31,396 23,381
Accrued expenses 16,980 25,824
-------- --------
TOTAL CURRENT LIABILITIES 96,004 93,927
-------- --------
LONG-TERM DEBT:
Senior Subordinated Notes 110,000 110,000
Senior Discount Notes 24,080 23,288
Term Loans 100,250 104,375
Notes payable to related parties 2,500 2,500
Capital leases 1,535 1,605
Other 2,777 2,914
-------- --------
TOTAL LONG-TERM DEBT 241,142 244,682
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 10,000,000
shares authorized, no shares issued and outstanding -
Common stock, $0.01 par value, 100,000,000 shares
authorized, 36,142,883 and 36,142,883 shares
issued and outstanding, respectively 361 361
Non-voting common stock, $0.01 par value, 40,000,000 shares
authorized, 31,520,000 and 31,520,000 issued and outstanding,
respectively 315 315
Additional paid-in capital 51,553 51,553
Foreign currency translation adjustment (400) (778)
Accumulated deficit (4,546) (4,287)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 47,283 47,164
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $384,429 $385,773
======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
HEDSTROM HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
For the three months ended March 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $78,389 $47,937
Cost of sales 56,325 34,541
------- -------
Gross profit 22,064 13,396
Selling, general and administrative expense 14,815 6,788
------- -------
Operating income 7,249 6,608
Interest expense 7,688 1,535
------- -------
Income (loss) before income taxes (439) 5,073
Income tax expense (180) 1,857
------- -------
Net income (loss) $ (259) $ 3,216
======= =======
Basic earnings (loss) per share:
Net income (loss) per share ($0.00) $0.10
Weighted average number of common shares
outstanding (in thousands) 67,663 32,941
Diluted earnings (loss) per share:
Net income (loss) per share ($0.00) $0.10
Weighted average number of common shares
outstanding (in thousands) 69,010 33,416
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
HEDSTROM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the three months ended March 31,
-----------------------------------
1998 1997
<S> ---- ----
Cash flows from operating activities: <C> <C>
Net income (loss) $ (259) $3,216
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation of property, plant and equipment and
amortization of goodwill and deferred charge 3,354 1,481
Amortization of deferred financing fees 1,539 -
Deferred income tax provision 15 1,867
Changes in current assets and current liabilities,
net of acquisitions:
Accounts receivable (1,120) (33,297)
Inventories (3,527) 1,601
Prepaid expenses and other current assets 55 (591)
Accounts payable 8,015 7,472
Accrued expenses (5,433) 2,175
------- -------
Net cash provided by (used for) operating activities 2,639 (16,076)
------- -------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (1,772) (1,022)
Acquisition of ERO, Inc. (3,037) -
Other acquisitions (3,500) -
------- -------
Net cash used for investing activities (8,309) (1,022)
------- -------
Cash flows from financing activities:
Principal payments on Term Loans (3,125) -
Borrowings on Revolving Credit Facility, net 2,000 17,200
Other (301) 88
------- -------
Net cash provided by (used for) financing activities (1,426) 17,288
------- -------
Net increase (decrease) in cash and cash equivalents (7,096) 190
Cash and cash equivalents:
Beginning of period 10,844 533
------- -------
End of period $ 3,748 $ 723
======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
HEDSTROM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
Common Stock Foreign
------------ Additional Currency
Par Paid-In Translation Accumulated
Shares Value Capital Adjustment Deficit Total
---------- ------ ------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 67,662,883 $ 676 $51,553 $ (778) $(4,287) $47,164
Foreign currency translation adjustment - - - 378 - 378
Net income - - - - (259) (259)
---------- ----- ------- ------ ------- -------
Balance at March 31, 1998 67,662,883 $ 676 $51,553 $ (400) $(4,546) $47,283
========== ===== ======= ====== ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
HEDSTROM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - PRINCIPLES OF CONSOLIDATION:
The accompanying interim consolidated financial statements include
the accounts of Hedstrom Holdings, Inc. ("Holdings") and its wholly
owned subsidiary, Hedstrom Corporation ("Hedstrom," and together
with Holdings, the "Company"). Effective June 12, 1997, the Company
acquired ERO, Inc. ("ERO"), which became a wholly owned subsidiary
of Hedstrom (see Note 2). The accompanying consolidated financial
statements reflect the operations of ERO since June 1, 1997. These
financial statements are unaudited but, in the opinion of
management, contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
condition, results of operations and cash flows of the Company.
Certain prior period amounts have been reclassified to conform with
the current period presentation. All intercompany balances and
transactions have been eliminated in consolidation.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 as filed with the Securities and
Exchange Commission.
The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the
entire fiscal year.
NOTE 2 - ACQUISITION OF ERO, INC.:
On April 10, 1997, Hedstrom and HC Acquisition Corp., a wholly
owned subsidiary of Hedstrom, entered into an Agreement and Plan of
Merger (the "Merger Agreement") with ERO to acquire ERO for a total
enterprise value of approximately $200 million. Pursuant to the
Merger Agreement, HC Acquisition Corp. commenced and, on June 12,
1997, consummated a tender offer for all of the outstanding shares
of the common stock of ERO at a purchase price of $11.25 per share
(the "Tender Offer"). The Company also assumed a purchase price
contingency related to ERO, Inc.'s acquisition of Amav in October of
1995. The contingency included an additional $3.0 million of
purchase price contingent upon achievement of certain conditions. As
those conditions were met as of December 31, 1997, the Company
accrued a liability for the contingency against goodwill. This was
reflected in accrued expenses in the consolidated balance sheet as
of December 31, 1997. The payment was made in March 1998. Upon
consummation of the Tender Offer, (i) HC Acquisition Corp. was
merged with and into ERO (the "Merger") with ERO surviving the
Merger as a wholly owned subsidiary of Hedstrom, (ii) certain of
ERO's outstanding indebtedness was refinanced by Hedstrom (the "ERO
Refinancing") and (ii) Hedstrom refinanced (the "Hedstrom Refinancing")
its existing revolving credit facility and term loan facility. The Merger,
the Tender Offer, the ERO Refinancing and the Hedstrom Refinancing are
collectively referred to herein as the "Acquisition".
<PAGE>
Holdings and Hedstrom required approximately $301.1 million in
cash to consummate the Acquisition, including approximately (i)
$122.6 million paid in connection with the Tender Offer and the
Merger, (ii) $82.6 million paid in connection with the ERO Refinancing,
(iii) $74.9 million paid in connection with the Hedstrom Refinancing
and (iv) $21.0 million incurred in respect of fees and expenses. The
funds required to consummate the Acquisition were provided by (i) $75.0
million of term loans under a new six-year senior secured term loan facility
(the "Tranche A Term Loan Facility"), (ii) $35.0 million of term loans
under a new eight-year senior secured term loan facility (the "Tranche B
Term Loan Facility" and, together with the Tranche A Term Loan Facility,
the "Term Loan Facilities"), (iii) $16.1 million of borrowings under a
new $70.0 million senior secured revolving credit facility (the "Revolving
Credit Facility" and, together with the Term Loan Facilities, the "Senior
Credit Facilities"), (iv) $110.0 million of gross proceeds from the offering
by Hedstrom of 10% Senior Subordinated Notes Due 2007 (the "Senior
Subordinated Notes"), (v) $25.0 million of gross proceeds from the offering
by Holdings of 44,612 units consisting of 12% Senior Discount Notes Due 2009
(the "Discount Notes")and 2,705,896 shares of Common Stock, $.01 par value
per share, of Holdings ("Holdings Common Stock") and (vi)$40.0 million of
gross proceeds from the private placement of 31,520,000 shares of Non-Voting
Common Stock, $.01 par value per share, of Holdings ("Holdings Non-Voting
Common Stock") and 480,000 shares of Holdings Common Stock. The Revolving
Credit Facility will also be used to finance certain seasonal working
capital requirements.
The acquisition of ERO has been accounted for under the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based upon fair value at the
date of the acquisition of ERO. The excess of the purchase price over the
fair values of the tangible net assets acquired was approximately $148.1
million, has been recorded as goodwill and is being amortized on a straight-
line basis over 40 years. In the event that facts and circumstances indicate
that the goodwill may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the assets carrying
amount to determine if an adjustment is required.
The fair value of assets acquired and liabilities assumed,
reflecting the final allocation, was as follows (in thousands):
Current assets $56,200
Net property, plant and equipment 20,000
Other assets 14,700
Goodwill 148,100
Liabilities assumed (116,400)
--------
Cash paid for ERO $122,600
========
<PAGE>
The unaudited pro forma results below assume the Acquisition
occurred at the beginning of the periods presented (in thousands,
except per share amounts):
Three Months Ended
March 31,
------------------
1998 1997
------- -------
Net sales $78,389 $67,876
Net loss $ (259) $ (837)
Net loss per share basic $ (0.00) (0.03)
Net loss per share diluted $ (0.00) (0.03)
The above pro forma results include adjustments to give effect to
amortization of goodwill, interest expense related to the Senior
Subordinated Notes, the Discount Notes and the Senior Credit
Facilities and cost savings resulting from the rationalization of
the sales, marketing and general and administrative functions,
closings of duplicate facilities and reductions in external
administrative expenditures including legal, insurance, tax, audit
and public relations expenditures. These cost savings reflect
personnel terminations that have already occurred or that have been
formally communicated to the employees, closings of duplicate
facilities that have occurred and reductions in external
administrative expenses that have been negotiated, together with the
related tax effects. The pro forma results are not necessarily
indicative of the operating results that would have occurred had the
acquisition of ERO been consummated and had the cost actions giving
rise to the savings been implemented as of the beginning of the
periods presented, nor are they necessarily indicative of future
operating results.
NOTE 3 - INCOME PER COMMON SHARE:
Holdings adopted SFAS No. 128 "Earnings Per Share", effective
December 15, 1997. SFAS No. 128 requires the calculation of basic
and diluted earnings per share. Basic earnings per share is
computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing the net income by the
weighted average number of shares of common stock and other dilutive
securities.
NOTE 4 - INVENTORIES:
Inventories at March 31, 1998 and December 31, 1997 consist of the
following (in thousands):
March 31, December 31,
1998 1997
--------- ----------
Raw materials $19,180 $16,502
Work-in-process 6,813 5,690
Finished goods 25,644 25,272
------- -------
$51,637 $47,464
======= =======
<PAGE>
NOTE 5 - DEBT:
Debt consists of the following (in thousands):
March 31, December 31,
1998 1997
--------- ----------
Senior Subordinated Notes $110,000 $110,000
Senior Discount Notes 24,080 23,288
Term Loans 109,250 112,375
Revolving Credit Facility 37,500 35,500
Other 7,940 8,241
-------- --------
$288,770 $289,404
======== ========
Senior Subordinated Notes
The $110.0 million Senior Subordinated Notes bear interest at 10%
per annum, payable on June 1 and December 1 of each year, commencing
December 1, 1997. The Senior Subordinated Notes mature on June 1,
2007. Except as set forth below, the Senior Subordinated Notes are
not redeemable at the option of the Company prior to June 1, 2002.
On and after such date, the Senior Subordinated Notes are
redeemable, at the Company's option, in whole or in part, at the
following redemption prices (expressed in percentages of principal
amount), plus accrued and unpaid interest to the redemption date:
if redeemed during the 12-month period commencing on June 1 of the
years set forth below:
Redemption
Period Price
------ ----------
2002 105.000
2003 103.333
2004 101.667
2005 and thereafter 100.000%
In addition, at any time and from time to time prior to June 1,
2000, the Company may redeem in the aggregate up to $44.0 million
principal amount of Senior Subordinated Notes with the proceeds of
one or more equity offerings so long as there is a public market at
the time of such redemption (provided that the equity offering is an
offering by Holdings, a portion of the net cash proceeds thereof
equal to the amount required to redeem any such Senior Subordinated
Notes is contributed to the equity capital of the Company), at a
redemption price (expressed as a percentage of principal amount) of
110%, plus accrued and unpaid interest, if any, to the redemption
date; provided, however, that at least $66.0 million aggregate
principal amount of the Senior Subordinated Notes remains
outstanding after each such redemption.
<PAGE>
The Senior Subordinated Notes are unsecured senior subordinated
obligations of the Company and are unconditionally and fully
guaranteed (jointly and severally) on a senior basis by Holdings and
on a senior subordinated basis by each domestic subsidiary of the
Company. The Senior Subordinated Notes are subordinated to all
senior indebtedness (as defined) of the Company and rank pari passu
in right of payment with all senior subordinated indebtedness (as
defined) of the Company.
The Senior Subordinated Notes Indenture contains certain covenants
that, among other things, limit (i) the incurrence of additional
indebtedness by the Company and its restricted subsidiaries (as
defined), (ii) the payment of dividends and other restricted
payments by the Company and its restricted subsidiaries, (iii)
distributions from restricted subsidiaries, (iv) asset sales, (v)
transactions with affiliates, (vi) sales or issuances of restricted
subsidiary capital stock and (vii) mergers and consolidations.
Term Loans and Revolving Credit Facility
As discussed in Note 2, in connection with the Acquisition, the
Company obtained the Senior Credit Facilities. The Senior Credit
Facilities consist of (a) the six-year $75.0 million Tranche A
Senior Secured Term Loan Facility; (b) the eight-year $35.0 million
Tranche B Senior Secured Term Loan Facility; and (c) the Senior
Secured Revolving Credit Facility providing for revolving loans to
the Company and the issuance of letters of credit for the account of
the Company in an aggregate principal and stated amount at any time
not to exceed $70 million. Borrowings under the Revolving Credit
Facility will be available based upon a borrowing base not to exceed
85% of eligible accounts receivable and 50% of eligible inventory.
At the Company's option, the interest rates per annum applicable to
the Senior Credit Facilities will be either (i) the Eurocurrency
Rate (as defined) plus 2.5% in the case of the Tranche A Term Loan
Facility and the Revolving Credit Facility or 3.0% in the case of
the Tranche B Term Loan Facility or (ii) the Alternate Base Rate (as
defined) plus 1.5% in the case of the Tranche A Term Loan Facility
and the Revolving Credit Facility or 2.0% in the case of the Tranche
B Term Loan Facility. The Alternate Base Rate is the highest of (a)
Credit Suisse First Boston's Prime Rate (as defined) or (b) the
federal funds effective rate from time to time plus 0.5%. The
applicable margin in respect of the Tranche A Term Loan Facility and
the Revolving Credit Facility will be adjusted from time to time by
amounts to be agreed upon based on the achievement of certain
performance targets to be determined.
<PAGE>
The obligations of the Company under the Senior Credit Facilities
are unconditionally, fully and irrevocably guaranteed (jointly and
severally) by Holdings and each of the Company's direct or indirect
domestic subsidiaries (collectively, the "Senior Credit Facilities
Guarantors"). In addition, the Senior Credit Facilities will be
secured by first priority or equivalent security interests in (i)
all the capital stock of, or other equity interests in, each direct
or indirect domestic subsidiary of the Company and 65% of the
capital stock of, or other equity interests in, each direct foreign
subsidiary of the Company, or any of its domestic subsidiaries and
(ii) all tangible and intangible assets (including, without
limitation, intellectual property and owned real property) of the
Company and the Senior Credit Facilities Guarantors.
The Senior Credit Facilities contain a number of significant
covenants that, among other things, restrict the ability of the
Company to dispose of assets, incur additional indebtedness, repay
other indebtedness or amend debt instruments, pay dividends, create
liens on assets, make investments or acquisitions, engage in mergers
or consolidations, make capital expenditures, or engage in certain
transactions with affiliates. In addition, under the Senior Credit
Facilities, the Company is required to comply with specified
interest coverage and maximum leverage ratios.
Senior Discount Notes
In connection with the acquisition, Holdings received $25.0 million
of gross proceeds from the issuance by Holdings of 44,612 units,
consisting of the Discount Notes and 2,705,896 shares of Holdings
common stock. Of the $25.0 million in gross proceeds, $3.4 million
($1.25 per share) was allocated to the common stock, based upon
management's estimate of fair market value, and $21.6 million was
allocated to Discount Notes.
The Discount Notes are unsecured obligations of Holdings and have an
aggregate principle amount at maturity (June 1, 2009) of $44.6
million, representing a yield to maturity of 12%. No cash interest
will accrue on the Discount Notes prior to June 1, 2002.
Thereafter, cash interest will be payable on June 1 and December 1
of each year, commencing December 1, 2002.
Except as set forth below, the Discount Notes will not be redeemable
at the option of Holdings prior to June 1, 2002. On and after such,
the Discount Notes will be redeemable, at Holdings' option, in whole
or in part, at the following redemption prices (expressed in
percentages of principal amount at maturity), plus accrued and
unpaid interest to the redemption date:
if redeemed during the 12-month period commencing on June 1 of the
years set forth below:
Redemption
Period Price
------ ----------
2002 106.000
2003 104.000
2004 102.000
2005 and thereafter 100.000%
<PAGE>
In addition, at any time and from time to time prior to June 1,
2000, Holdings may redeem in the aggregate up to 40% of the accreted
value of the Discount Notes with the proceeds of one or more equity
offerings by Holdings so long as there is a public market at the
time of such redemption, at a redemption price (expressed as a
percentage of accreted value on the redemption date) of 112%, plus
accrued and unpaid interest, if any, to the redemption date;
provided however, that at least $26.8 million aggregate principal
amount at maturity of the Discount Notes remains outstanding after
each such redemption.
At any time on or prior to June 1, 2002, the Discount Notes may also
be redeemed as a whole at the option of Holdings upon the occurrence
of a change of control (as defined) at a redemption price equal to
100% of the accreted value thereof plus the applicable premium, and
accrued and unpaid interest, if any, to the date of redemption.
The Discount Notes Indenture contains certain covenants that, among
other things, limit (i) the incurrence of additional indebtedness by
Holdings and its restricted subsidiaries (as defined), (ii) the
payment of dividends and other restricted payments by Holdings and
its restricted subsidiaries, (iii) distributions from restricted
subsidiaries, (iv) asset sales, (v) transactions with affiliates,
(vi) sales or issuances of restricted subsidiary capital stock and
(vii) mergers and consolidations.
Other Debt
Other debt consists of a $2.5 million Holdings note payable to the
previous owners of Holdings as well as various other mortgages,
capital leases and equipment loans. The $2.5 million note payable
bears interest at 10% per annum and is payable at the earlier of
April 30, 2002, or when the Company has met certain cash flow
levels. The mortgages and equipment loans have varying interest
rates and maturities.
NOTE 6 - RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:
Holdings has adopted SFAS No. 130, "Reporting Comprehensive Income",
as of January 1, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
a full set of general purpose financial statements. Comprehensive
income is defined as the total of net income and all other non-owner
changes in equity. Holdings Comprehensive Income for the quarter
ended March 31, 1998 would be as follows (in thousands):
Net Loss $(259)
Foreign currency 231
translation adjustments -----
Comprehensive Loss $ (28)
=====
Adjustments to other non-owner changes will be reflected in
comprehensive income and cumulative comprehensive income that will
be reported in the consolidated statement of shareholders' equity in
Holding's Annual Report on Form 10-K for the fiscal year ending
December 31, 1997.
<PAGE>
Holdings has adopted SFAS No. 131, "Disclosure about Segments of An
Enterprise and Related Information", as of January 1, 1998. This
pronouncement changes the requirements under which public businesses
must report segment information. The objective of the pronouncement
is to provide information about a company's different types of
business activities and different economic environments. SFAS No.
131 requires companies to select segments based on their internal
reporting system. Holdings' current segments, as reported herein,
are consistent with the company's internal reporting systems. As
required by SFAS No 131, compliance with the respective reporting
requirements will be reflected in Holdings Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
Holdings has adopted SFAS No. 132, "Employees' Disclosures about
Pension and Other Postretirement Benefits," as of January 1, 1998.
This pronouncement revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the
measurement or recognition of those plans, however, it does require
additional information on changes in the benefit obligations and
fair values of plan assets in order to facilitate financial
analysis. Management does not believe that SFAS No. 132 will have a
significant impact on Holdings' financial statements.
<PAGE>
NOTE 7 - SUBSIDIARY GUARANTORS/NON GUARANTORS FINANCIAL INFORMATION:
The following is financial information pertaining to Hedstrom and its subsidiary
guarantors and subsidiary nonguarantors (with respect to the Senior Subordinated
Notes and the Senior Credit Facilities) for the periods in which they are
included in Holding's accompanying consolidated financial statements.
<TABLE>
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
(In thousands)
At March 31, 1998 At December 31, 1997
-------------------------------------------- ------------------------------------------
Hedstrom Hedstrom
Hedstrom Subsidiary Hedstrom Subsidiary
Subsidiary Non- Adjustments/ Total Subsidiary Non- Adjustments Total
Assets Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Elimination Hedstrom
- ---------------------------- -------- -------- ------------ -------- --------- --------- ----------- --------
<S>
Current Assets: <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,486 $ 1,262 $ - $ 3,748 $ 8,984 $ 1,860 $ - $ 10,844
Accounts receivable, net 78,935 5,529 - 84,464 73,625 9,077 - 82,702
Inventories 40,481 11,305 (149) 51,637 38,429 9,075 (40) 47,464
Deferred income taxes (c) 7,128 - - 7,128 7,045 - - 7,045
Prepaid expenses and other
current assets 3,854 892 - 4,746 4,310 491 - 4,801
-------- ------- -------- -------- -------- ------- --------- --------
Total current assets 132,884 18,988 (149) 151,723 132,393 20,503 (40) 152,856
-------- ------- -------- -------- -------- ------- --------- --------
Property, plant and
equipment, net 27,002 16,911 - 43,913 27,448 15,375 - 42,823
-------- ------- -------- -------- -------- ------- --------- --------
Other Assets:
Investment in and advances
to Nonguarantor Subsidiaries 44,131 - (44,131) - 44,799 - (44,799) -
Deferred charges, net 16,782 - - 16,782 17,715 - - 17,715
Goodwill, net 142,595 18,363 - 160,958 142,692 18,484 - 161,176
Deferred income taxes 10,481 (522) - 9,959 10,579 (522) - 10,057
-------- ------- -------- -------- -------- ------- -------- --------
Total other assets 213,989 17,841 (44,131) 187,699 215,785 17,962 (44,799) 188,948
-------- ------- -------- -------- -------- ------- -------- --------
Total assets $373,875 $53,740 $(44,280) $383,335 $375,626 $53,840 $(44,839) $384,627
======== ======= ======== ======== ======== ======= ======== ========
</TABLE>
<PAGE>
<TABLE>
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
(In thousands)
At March 31, 1998 At December 31, 1997
-------------------------------------------- ------------------------------------------
Hedstrom Hedstrom
Hedstrom Subsidiary Hedstrom Subsidiary
Subsidiary Non- Adjustments/ Total Subsidiary Non- Adjustments Total
Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Elimination Hedstrom
-------- -------- ------------ -------- --------- --------- ----------- --------
Liabilities and stockholders'
equity
- ----------------------------
<S>
Current liabilities: <C> <C> <C> <C> <C> <C> <C> <C>
Revolving line of credit $ 30,550 $ 6,950 $ - $ 37,500 $ 33,282 $ 2,218 $ - $35,500
Current portion of long-term
debt and capital lease 9,398 730 - 10,128 8,492 730 - 9,222
Advances from Guarantor
Subsidiaries - 32,268 (32,268) - - 31,956 (31,956) -
Accounts payable (c) 29,359 2,037 - 31,396 20,784 2,597 - 23,381
Accrued expenses 18,890 (936) (132) 17,822 23,939 2,432 (16) 26,355
-------- ------- -------- -------- -------- ------- -------- --------
Total current liabilities 88,197 41,049 (32,400) 96,846 86,497 39,933 (31,972) 94,458
-------- ------- -------- -------- -------- ------- -------- --------
Senior Subordinated Notes 110,000 - - 110,000 110,000 - - 110,000
Term Loans 100,250 - - 100,250 104,375 - - 104,375
Capital leases 1,533 - - 1,533 1,605 - - 1,605
Other 1,843 934 - 2,777 1,857 1,057 - 2,914
-------- ------- -------- -------- -------- ------- -------- --------
Total long-term debt (a) 213,626 934 - 214,560 217,837 1,057 - 218,894
-------- ------- -------- -------- -------- ------- -------- --------
Total Liabilities 301,823 41,983 (32,400) 311,406 304,334 40,990 (31,972) 313,352
-------- ------- -------- -------- -------- ------- -------- --------
Total stockholder's equity
(deficit) (b) 72,052 11,757 (11,880) 71,929 71,292 12,850 (12,867) 71,275
-------- ------- -------- -------- -------- ------- -------- --------
Total liabilities and
stockholder's equity $373,875 $53,740 $(44,280) $383,335 $375,626 $53,840 $ 44,839 $384,627
======== ======= ======== ======== ======== ======= ======== ========
</TABLE>
<PAGE>
<TABLE>
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING INCOME STATEMENTS
(In thousands)
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
------------------------------------------ ------------------------------------------
Hedstrom Hedstrom
Hedstrom Subsidiary Hedstrom Subsidiary
Subsidiary Non- Adjustments Total Subsidiary Non- Adjustments Total
Statement of Operations Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Eliminations Hedstrom
- ------------------------- --------- -------- ------------ -------- ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $76,739 $5,941 $(4,291) $78,389 $46,527 $1,410 $ - $47,937
Cost of sales 55,438 5,240 (4,353) 56,325 33,404 1,137 - 34,541
------- ------ ------- ------- ------- ------ -------- -------
Gross profit 21,301 701 62 22,064 13,123 273 - 13,396
Selling, general and
administrative expense 13,077 1,738 - 14,815 6,520 268 - 6,788
------- ------ ------- ------- ------- ------ -------- -------
Operating Income(loss) 8,224 (1,037) 62 7,249 6,603 5 - 6,608
Interest expense(c) 6,222 560 - 6,782 1,471 1 - 1,472
------- ------ ------- ------- ------- ------ -------- -------
Income(loss)before income taxes 2,002 (1,597) 62 467 5,132 4 - 5,136
Income tax provision(benefit)(c) 794 (627) 25 192 1,879 1 - 1,880
------- ------ ------- ------- ------- ------ -------- -------
Net income(loss) $ 1,208 $ (970) $ 37 $ 275 $ 3,253 $ 3 $ - $ 3,256
======= ====== ======= ======= ======= ====== ======== =======
</TABLE>
<PAGE>
<TABLE>
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
--------------------------------------- ---------------------------------------
Hedstrom Hedstrom
Hedstrom Subsidiary Hedstrom Subsidiary
Subsidiary Non- Adjustment Total Subsidiary Non- Adjustments Total
Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Eliminations Hedstrom
--------- --------- ------------ -------- --------- --------- ----------- --------
<S>
Cash Flows from operating activities: <C> <C> <C> <C> <C> <C> <C> <C>
Net income(loss)(c) $ 1,208 $ (970) $ 37 $ 275 $3,253 $ 3 $ - $ 3,256
Adjustments to reconcile net income
(loss) to net cash (used for)
provided by operating activities
Depreciation of property, plant
and equipment and amortization
of other assets 3,597 452 - 4,049 1,478 3 - 1,481
Deferred income tax provision(c) 15 - - 15 1,867 - - 1,867
Changes in current assets and
current liabilities, net of
acquisitions:
Accounts receivable (4,667) 3,548 - (1,119) (32,141) (1,196) - (33,337)
Inventories (1,108) (2,230) (189) (3,527) 1,636 (35) - 1,601
Prepaid expenses and other
current assets 456 (401) - 55 (586) (5) - (591)
Accounts payable(c) 8,576 (560) - 8,016 7,401 71 - 7,472
Accrued expenses (1,907) (3,368) 152 (5,123) 1,810 365 - 2,175
Net cash(used for) provided by ------- ------ ------- ------- ------- ------- ------- -------
operating activities 6,170 (3,529) - 2,641 (15,282) (794) - (16,076)
------- ------ ------- ------- ------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
HEDSTROM CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
--------------------------------------- ---------------------------------------
Hedstrom Hedstrom
Hedstrom Subsidiary Hedstrom Subsidiary
Subsidiary Non- Adjustment Total Subsidiary Non- Adjustments Total
Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Eliminations Hedstrom
--------- --------- ------------ -------- --------- --------- ----------- --------
<S>
Cash flows from investing activities:
Acquisitions of property, plant <C> <C> <C> <C> <C> <C> <C> <C>
and equipment (688) (1,084) - (1,772) (1,021) (1) - (1,022)
Acquisition of ERO, Inc. (3,037) - - (3,037) - - - -
Other Acquisition - (3,500) - (3,500) - - - -
------- ------ ------- ------- ------- ------- ----------- ------
Net cash used for investing
activities (3,725) (4,584) - (8,309) (1,021) (1) - (1,022)
------- ------ ------- ------- ------- ------- ----------- -------
Cash flows from financing activities:
Principal payments on term loans (4,125) - - (4,125) - - - -
Borrowings on new revolving line
of credit 2,000 - - 2,000 17,200 - - 17,200
Borrowings(repayments)on old
revolving loans of credit, net - - - - (860) 860 - -
Advances to/(from) Nonguarantor
subsidiaries (7,924) 7,924 - - - - - -
Other 1,106 (409) - 697 88 - - 88
------- ------ ------- ------- ------- ------- ----------- -------
Net increase(decrease)in cash and
cash equivalents (8,943) 7,515 - (1,428) 16,428 860 - 17,288
------- ------ ------- ------- ------- ------- ----------- -------
Cash and cash equivalents (6,498) (598) - (7,096) 125 65 - 190
Beginning of period 8,984 1,860 - 10,844 467 66 - 533
------- ------ ------- ------- ------- ------- ----------- -------
End of period $2,486 $1,262 $ - $ 3,748 $ 592 $ 131 $ - $ 723
======= ====== ======= ======= ======= ======= =========== =======
</TABLE>
<PAGE>
Each of the Subsidiary Guarantors is a wholly-owned subsidiary of Hedstrom
and has fully and unconditionally guaranteed the Senior Subordinated Notes
on a joint and several basis. The Company has not presented separate
financial statements and other disclosures concerning each Subsidiary
Guarantor because management has determined that such information is not
material to investors.
The column "Total Hedstrom" represents the consolidated financial statements
of Hedstrom Corporation and its subsidiaries. Hedstrom Corporation is
Holdings' only direct subsidiary. The primary differences between the
consolidated amounts of Hedstrom Corporation and the consolidated amounts
included in the accompanying consolidated financial statements of Holdings
are as follows:
(a) Hedstrom Corporation's Long-Term Debt does not include a $2.5 million
note payable issued by Holdings in connection with its 1995 recapitalization,
and the issuance of Senior Discount Notes valued at $24.1 million at March 31,
1998.
(b) Hedstrom Corporation's stockholder's equity includes Holdings'
stockholders' equity plus $21.6 million in proceeds from the issuance of
Senior Discount Notes, which proceeds were contributed as equity by Holdings
to Hedstrom Corporation less the interest, net of taxes, accrued thereon and
as of both March 31, 1998 and December 31, 1997, the $2.5 million note payable
described in (a) above less the interest, net of taxes, accrued thereon.
(c) Accounts payable, interest expense, and deferred income taxes do not
reflect the accrued interest, interest expense and the deferred tax benefit
of accrued interest on the obligations discussed in (a) above.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the
consolidated financial statements of the Company and the notes
thereto contained herein, as well as included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 as
filed with the Securities and Exchange Commission. This Quarterly Report on
Form 10-Q contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, which are subject to
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in such statements. These risks, which are
further detailed in the Registration Statement on Form S-1 of the Company and
Holdings as filed with the Securities and Exchange Commission
(File Nos. 333-32385-05 and 333-32385), include, but are not limited to,
the Company's recent net losses, substantial leverage and debt service
requirements, financing restrictions and covenants, reliance on key
customers, dependence on key licenses and obtaining new licenses, raw
materials prices and product liability risks. In addition such
forward-looking statements are necessarily dependent upon assumptions,
estimates and dates that may be incorrect or imprecise and involve known and
unknown risks, uncertainties and other factors. Accordingly, any
forward-looking statements included herein do not purport to be predictions
of future events or circumstances and may not be realized . Forward-looking
statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "pro forma," "anticipates," or "intends"
<PAGE>
or the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, undue reliance should not be placed on any forward-looking
statements. The Company and Holdings disclaim any obligation to update any
such factors or to publicly announce the results of any revisions to any of
the forward-looking statements contained herein to reflect future events or
developments.
Results of Operations
The following table sets forth net sales and gross profit for
each of Hedstrom's operating divisions for the periods indicated:
Three Months
Ended March 31,
1998 1997
---- ----
(in millions)
Net sales
Bedford Division............ $39.9 $30.9
Ashland Division............ 13.7 13.7
International Division...... 5.1 3.3
ERO Division................ 13.6 --
Amav Division............... 6.1 --
----- -----
Total net sales $78.4 $47.9
===== =====
Gross profit:
Bedford Division............ $ 9.7 $ 8.4
Ashland Division............ 4.1 4.2
International Division...... 1.2 0.8
ERO Division............ 6.0 --
Amav Division 1.1 --
----- -----
Total gross profit $22.1 $13.4
===== =====
A comparison of the Company's results of operations for the three
months ended March 31, 1998 with the same period in 1997 is
necessarily affected by the impact of the consummation of the
acquisition of ERO on June 12, 1997. Due to the inclusion of ERO's
results from and after June 12, 1997, management does not believe
the comparison of operating results with the same period in 1997 is
meaningful.
Net Sales. Total net sales increased to $78.4 million for the
quarter ended March 31, 1998 from $47.9 million for the comparable
prior year quarter, an increase of $30.5 million. The increase was
attributable to the inclusion of the ERO and AMAV Divisions and
increases in sales at the Bedford and International Divisions. The
inclusion of the ERO and AMAV Divisions resulted in an increase of
$18.7 million versus the prior year first quarter. Net sales of the
Bedford Division increased by approximately $9.0 million, primarily
as a result of (i) increased sales of trampolines due to the
business acquired from Bollinger Industries, Inc. and (ii) sales
associated with the acquisition of M.A. Henry Limited in August of
1997. Sales at the Ashland Division were even with the prior year
comparable quarter. On a pro-forma basis, the net sales of the ERO
and AMAV Divisions for the quarter were even compared to the prior
year.
<PAGE>
Gross Profit. Gross profit for the quarter ended March 31, 1998
increased $8.7 million to $22.1 million as compared to $13.4 million
for the quarter ended March 31, 1997. The increase was primarily due
to higher sales as compared to the prior years first quarter.
As a percentage of consolidated net sales, consolidated gross profit
increased slightly to 28.2% for the first quarter of 1998 versus
28.0% for the first quarter of 1997. The increase was due in part to
the inclusion of the results of the ERO and AMAV Divisions, whose
combined gross profit margin of 35.9% is higher than the other
divisions of Hedstrom. The Bedford Division's gross profit margin
for the first quarter of 1998 decreased to 24.3% from 27.0% from the
prior years comparable quarter. The decrease was primarily
attributable to product mix as sales of trampolines, which carry a
lower overall gross profit margin, increased as a percentage of
total Bedford Division sales and wood kit sales, which generally
carry a higher overall gross margin, decreased as a percentage of
total sales. Gross profit margin at Ashland remained relatively
unchanged quarter to quarter at 30.2% versus 30.7% as changes in
product sales mix did not significantly impact overall division
margins. On a pro-forma basis, the gross profit percentage of the
ERO Division increased in the first quarter of 1998 versus the first
quarter of 1997 due to a more favorable product mix. On a pro-forma
basis, the gross margin percentage of the AMAV Division decreased in
the quarter ended March 31, 1998 versus the quarter ended March 31,
1997 due to higher than expected product returns and unfavorable
product sales mix.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased $8.0 million to $14.8 million
in the first quarter of 1998 versus $6.8 million in the prior years
first quarter. Expressed as a percentage of sales, selling, general
and administrative expenses increased to 18.8%. The increase was
primarily due to the inclusion of the ERO and AMAV Divisions which
experience relatively high selling, general and administrative
expenses, and include the amortization of acquisition-related
intangible assets and royalty expense.
Interest expense. Interest expense increased as a result of the
incurrence of Acquisition-related indebtedness.
Income Tax Expense. Holdings' effective income tax rate for the
quarter ended March 31, 1998
was 76.8% versus 36.6% for the quarter ended March 31, 1997. The
increase was attributable to the acquisition of ERO, which generated
a large amount of non-deductible goodwill.
Liquidity and Capital Resources of the Company
Working Capital and Cash Flows
Net cash used for operating activities was $0.4 million for the
fiscal quarter ended March 31, 1998. The use of cash reflects the
seasonal nature of sales. The ERO and AMAV Divisions sales and
accounts receivable build during the second half of the year and are
liquidated in the first half of the following year while the
Bedford, Ashland and International Divisions build sales and
accounts receivable during the first half of the year and liquidate
them during the second half of the year.
<PAGE>
Net cash used for investing activities was $5.3 million during the
first quarter of 1998, including $1.8 million used for the
acquisition of property, plant and equipment, $3.0 million of
contingency payments relating to the ERO Acquisition as discussed in
Note 2 and $3.5 million used to purchase certain assets of a United
Kingdom manufacturer.
Net cash used for financing activities was $1.4 million representing
$3.4 million of principal payments on the Companies term loans
offset by net proceeds on the Companies revolving loan to fund
operating cash requirements of $2.0 million.
Liquidity
Interest payments on the Senior Subordinated Notes and interest
and principal payments under the Senior Credit Facilities, as
detailed in the Registration Statements, represent significant cash
requirements for the Company. The senior subordinated notes require
semiannual interest payments of $5.5 million commencing in December
1997. Borrowings under the Senior Credit Facilities will bear
interest at floating rates and will require interest payments on
varying dates depending on the interest rate option selected by the
Company. Borrowings under the Senior Credit Facilities consisted of
$110 million under the Term Loan Facilities, comprised of a $75
million Tranche A Term Loan maturing in 2003 and a $35 million
Tranche B term loan maturing in 2005. In addition, the Senior
Credit Facilities include a $70 million Revolving Credit Facility.
At present, the Discount Notes do not require cash interest
payments. Rather, principal will accrete to an aggregate principal
amount of $44.6 million on June 1, 2002. Commencing on such date,
Holdings will be required to make semiannual interest payments of
$2.7 million.
The Company's remaining liquidity demands will be for capital
expenditures and for working capital needs. For the foreseeable
future, the Company expects that its capital expenditures will be
limited primarily to maintaining existing facilities and equipment
and completing its insourcing of manufacturing certain components.
The Company's credit agreement imposes an annual limit of $10.0
million on its capital expenditures and investments (subject in any
given year to a roll-over of up to $4.0 million of unused capital
expenditure capacity from the previous year). In addition, the
Company may incur expenditures in order to achieve certain
anticipated cost savings.
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Revolving Credit Facility. As of
March 31, 1998, approximately $30.3 million was available to the
Company as cash and available borrowings under the Revolving Credit
Facility (subject to borrowing base limitations). Management
believes that cash generated from operations, together with
borrowings under the Revolving Credit Facility, will be sufficient
to meet the Company's working capital and capital expenditures needs
for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in several lawsuits
arising in the ordinary course of business. The Company
maintains insurance covering such liability, and does not
believe that the outcome of any such lawsuits will have a
material adverse effect on the Company's financial
condition.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(1) 2.1 - Agreement and Plan of Merger, dated as
of April 10, 1997, among Hedstrom Corporation, HC
Acquisition Corp. and ERO, Inc.
(1) 3.1 - Restated Certificate of Incorporation
of Hedstrom Holdings, Inc., as filed
with the Secretary of State of the State
of Delaware on October 27, 1995.
(1) 3.2 Certificate of Amendment of Restated
Certificate of Incorporation of Hedstrom
Holdings, Inc., as filed with the Secretary of State
of the State of Delaware on June 6, 1997.
(1) 3.3 - Restated Bylaws of Hedstrom Holdings, Inc.
(1) 3.4 - Certificate of Incorporation of New
Hedstrom Corp., as filed with the Secretary of
State of the State of Delaware on November 20, 1990.
(1) 3.5 - Certificate of Amendment of the
Certificate of Incorporation of New Hedstrom
Corp., as filed with the Secretary of State of the
State of Delaware on January 14, 1991.
(1) 3.6 - By-Laws of Hedstrom Corporation.
(1) 4.1 - Indenture, dated as of June 1, 1997,
among Hedstrom Corporation, Hedstrom Holdings,
Inc., the Subsidiary Guarantors identified on the
signature pages thereto and IBJ Schroder Bank &
Trust Company, as Trustee.
(1) 4.2 - Form of Senior Subordinated Note.
(1) 4.4 - Indenture, dated as of June 1, 1997,
among Hedstrom Holdings, Inc. and United States
Trust Company of New York, as Trustee.
<PAGE>
(1) 4.5 - Form of Discount Note.
11.1 - Computation of Earnings Per Share.
27.1 - Financial Data Schedule.
(1) Incorporated by reference to the respective
exhibit to Holdings' and Hedstrom's Registration
Statement on Form S-1 (File Nos. 333-32385-05
and 333-32385).
b) Reports on Form 8-K
The registrant has not filed any reports on Form 8-K during
the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrants have duly caused this report to be signed on
their behalf by the undersigned thereunto duly authorized.
Date: May 14, 1998
HEDSTROM HOLDINGS, INC.
HEDSTROM CORPORATION
/s/ David F. Crowley
----------------------
David F.Crowley
Chief Financial Officer
EXHIBIT 11.1
HEDSTROM HOLDINGS, INC. AND SUBSIDIARY
EARNINGS PER SHARE DISCLOSURE
For the quarterly period ended March 31, 1998
(Dollars in thousands)
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic Earnings Per
Share:
Net loss $(259) $ 67,663 $ (0.00)
Effect of Dilutive Securities:
Stock options in the money - 4,142 -
Buyback of shares at
average price of $1.64 _ (2,795) -
----- -------- -------
Net effect of stock options - 1,347 -
----- -------- -------
Diluted Earnings Per
Share:
Net income (loss) $(259) $ 69,010 $ (0.00)
===== ======== =======
Options to purchase 85,000 shares of common stock at $1.64
per share were outstanding at December 31, 1997 but were not
included in the computation of diluted EPS because average
market price of the common shares was not greater than the
options exercise price.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3748
<SECURITIES> 0
<RECEIVABLES> 84464
<ALLOWANCES> 0
<INVENTORY> 51637
<CURRENT-ASSETS> 151723
<PP&E> 43913
<DEPRECIATION> 0
<TOTAL-ASSETS> 384429
<CURRENT-LIABILITIES> 96004
<BONDS> 0
0
0
<COMMON> 676
<OTHER-SE> 46607
<TOTAL-LIABILITY-AND-EQUITY> 384429
<SALES> 78389
<TOTAL-REVENUES> 78389
<CGS> 56325
<TOTAL-COSTS> 14815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7688
<INCOME-PRETAX> (439)
<INCOME-TAX> (180)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (259)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
